Saturday, November 20, 2010

We all know that Indian Stock Markets are one of the most volatile markets of world and correct prediction of Indian Stock markets is not easy at all and any person who says confidently that he can understand Indian Stock Markets correctly and hundred percent profit gurrantee if someone invested through him/her is simply making fool of the Amateur investor who goes to him for advice. One should always be careful if he comes across such investment agency or person, you can seriously lose your hard earned money.

I am trying to put some light on the best 3 investing tips for such volatile stock markets, but don't forget to use your own brain too along with these top tips for investing in Volatile stock markets.

So The top 3 investing tips for Volatile stock markets is following:

1. Diversify your investment - The best strategy to minimise risk of loss(If it happens) is to diversify while investing, which means that you should not invest whole of the monesy available in one single stock or I would say not even in a single sector too. The reason is that if you invest all of your hard earned money into one stock or sector, the chances of loosing whole of the money are too high if that sector becomes bearish. It is always better to diversify your investment for eg- If investor wants to invest 100,000 rupees into stock markets (which are very volatile, like the Indian Stock markets). He can break the amount into parts and then invest in different sectors thus making probability of loosing whole money very less, you can invest 25k in FMCG, 25000 in IT, 25000 in banking, 25000 in Auto sector stocks.

2. Expel the word 'Panic' out - The golden rule to any investment which involves some amount of risk is 'DON'T PANIC' if you follow these two golden words then you will definitly make profits, and always be a long term investor , Remember short term investment decisions are more prone to losses as compared to carefully analysed long term decisions in stock market investing. The worst thing you can do as an investor is panic and sell everything and then wait for the market to recover. Always remember "Buy low Sell high" should be motto in stock market investing.

3. Rebalance your investment - This tip requires some logical and analytical ability from the investor but would help in bringing the probability of risk down to maybe even zero percent. I would try to explain this tip with help of an example(feel free to comment in case you need more explanation).
Consider a person wants to invest 50,000 INR and he is not sure what percent he should invest in stocks or bonds, Do remember that always invest only that amount in stocks which is inline with the risk you can afford. There should be a balance maintained between investing in stocks and investing in govt bonds. He decides to invest 35000(70 percent) in stock markets and remaining 15000(30 percent) in bonds, Now there can be strong probability that the stock markets gave higher return on investment then the bonds. Considering that the person reinvested the dividends and profits again in stocks would become a riskier affair because the percentage of money invested in stock markets would rise and could reach levels of 80 to 85 percent, This would mean that the investment is no longer inline with the risk which person could tolerate and he might loose huge money if there is a stock market crash in next year of investment.

Now at this time the investor should again rebalance the investment between the bonds and the stocks so that risk always remains inline with what he can afford to lose. He should invest adequate percent of money earned through dividends in bonds so that overall percentage of investment remains as initial(70:30::stocks:bonds).

Thus rebalancing the investment is very important while investing in volatile markets like Indian Stock markets

So before closing this post I would summarize that Indian Stock markets like The Bombay Stock Exchange and National Stock Exchange are very volatile and investor should follow these 3 tips for investing in such markets in order to minimisez the probability of losses.

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